Jon A. Anda Jon A. Anda President of President of the - - PowerPoint PPT Presentation

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Jon A. Anda Jon A. Anda President of President of the - - PowerPoint PPT Presentation

Mar 20, 2024 95 likes •272 views

ENVIRONMENTAL DEFENSE Jon A. Anda Jon A. Anda President of President of the Environmental Markets Network the Environmental Markets Network at Environmental Defense at Environmental Defense ENVIRONMENTAL DEFENSE The projections include

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ENVIRONMENTAL DEFENSE

Jon A. Anda Jon A. Anda

President of President of the Environmental Markets Network the Environmental Markets Network at Environmental Defense at Environmental Defense

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ENVIRONMENTAL DEFENSE

“The projections include a contribution due to increased ice flow from Greenland and Antarctica at the rates observed for 1993-2003…the upper ranges of sea level rise…would increase by 0.1 m to 0.2 m. Larger values cannot be excluded, but understanding of these effects is too limited to assess their likelihood or provide a best estimate or an upper bound for sea level rise.” Source: IPCC 2007 Source: IPCC 2007

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ENVIRONMENTAL DEFENSE

The fat The fat-

  • tail of climate risk…

tail of climate risk…

Science & Risk

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ENVIRONMENTAL DEFENSE Delaying action means that future reductions of greenhouse gas emissions have to be much steeper

Shown here: Global emissions scenarios that limit further warming to 2° Fahrenheit

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ENVIRONMENTAL DEFENSE

Challenge: Challenge: We are purchasing a real option to avoid We are purchasing a real option to avoid catastrophe, the price of which is the cost of catastrophe, the price of which is the cost of developing new technologies sooner. developing new technologies sooner. Opportunity: Opportunity: If If: variance in damages › variance in cost : variance in damages › variance in cost Then Then: option to hedge may be cheap : option to hedge may be cheap And And: option gets cheaper with rising : option gets cheaper with rising damage variance & falling cost variance damage variance & falling cost variance

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ENVIRONMENTAL DEFENSE

A PB/CR Scenario A PB/CR Scenario

20% of 2007 by 2050 70% of 2007 by 2020 Tropical Deforestation 70% of 2012 100% of 2012 110% of 2012 115% of 2012 BAU BAU Other developing countries 65% of 2012 NA 100% of 2012 110% of 2012 115% of 2012 BAU China/India 70% of 1990 by 2050 90% of 1990 by 2020 Eastern Europe, Former Soviet Union 40% of 1990 by 2050 70% of 1990 by 2020 EU 20% of 2007 70% of 2007 90% of 2007 At 2007 US, Japan, Canada, Australia,

2050 2032 2027 2022 2017 2012

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ENVIRONMENTAL DEFENSE

  • The marginal cost of co2 abatement rises

The marginal cost of co2 abatement rises steadily steadily – – though marginal benefits are flat though marginal benefits are flat

  • We can estimate a co2 price where the lines

We can estimate a co2 price where the lines meet. meet.

  • A price signal

A price signal -

  • tax or safety valve

tax or safety valve -

  • set at this

set at this point will provide sufficient investment in point will provide sufficient investment in technology and offsets. technology and offsets.

  • The variance around both lines cannot be

The variance around both lines cannot be accurately reflected. accurately reflected.

The Static View The Static View

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ENVIRONMENTAL DEFENSE

The Dynamic View The Dynamic View

  • A hard cap on emissions will result in strategic,

A hard cap on emissions will result in strategic, rather than tactical, changes in energy strategy rather than tactical, changes in energy strategy

  • Capital investment flows to low

Capital investment flows to low-

  • carbon technology

carbon technology will drive innovation more rapidly than carbon will drive innovation more rapidly than carbon models are able to predict. models are able to predict.

  • The variance around marginal benefits

The variance around marginal benefits – – the fat tail the fat tail risk risk – – makes incremental abatement valuable. makes incremental abatement valuable.

  • Slow incremental change

Slow incremental change – – 1 ½ to 2% p.a. over 40 1 ½ to 2% p.a. over 40 years in US Cap years in US Cap -

  • are highly likely to succeed.

are highly likely to succeed.

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ENVIRONMENTAL DEFENSE

Committed: USCAP Committed: USCAP

USCAP

Chrysler, Chrysler, Excelon Excelon, Ford Motor, NRG Energy, Rio Tinto, Xerox , Ford Motor, NRG Energy, Rio Tinto, Xerox

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ENVIRONMENTAL DEFENSE

Economic impact: Economic impact:

Macro effects appear manageable Macro effects appear manageable

  • IPCC:

IPCC: for 445 to 535 ppm, 2030: for 445 to 535 ppm, 2030: maximum maximum global GDP reduction global GDP reduction -

  • 3%

3% ( (-

  • 0.12%

0.12% GDP GDP growth) growth)

  • MIT:

MIT: for 167bmt (approx. 520ppm) 2030: U.S. for 167bmt (approx. 520ppm) 2030: U.S. GDP reduction GDP reduction -

  • 1.5%

1.5% The “double dividend” of cutting taxes on labor The “double dividend” of cutting taxes on labor & capital, and falling oil prices, keeps MIT’s & capital, and falling oil prices, keeps MIT’s GDP reduction manageable. GDP reduction manageable.

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ENVIRONMENTAL DEFENSE

In 2007, the U.S. Will Have: In 2007, the U.S. Will Have:

6.1 6.1 bn bn mt mt of co2 emissions:

  • f co2 emissions:
  • 21% residential, 33% transportation, and

21% residential, 33% transportation, and 46% commercial & industrial (40% electric power) 46% commercial & industrial (40% electric power)

  • 20% natural gas, 37% coal, and 43% petroleum

20% natural gas, 37% coal, and 43% petroleum And 1.3 And 1.3 bn bn tons of non tons of non-

  • energy sources:

energy sources: 52% from non 52% from non-

  • ag

ag methane, 21% from methane, 21% from agriculture agriculture

Source: EIA 2007e Source: EIA 2007e

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ENVIRONMENTAL DEFENSE

The U.S. Policy Debate The U.S. Policy Debate

  • The system that best incents developing

The system that best incents developing world participation world participation should should win win

  • The system that best manages initial

The system that best manages initial abatement cost volatility abatement cost volatility may may win win

  • % of emissions covered and point or

% of emissions covered and point or regulation are other big issues regulation are other big issues

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ENVIRONMENTAL DEFENSE

The Safety Valve The Safety Valve

  • A safety valve becomes a carbon tax at the

A safety valve becomes a carbon tax at the trigger price, with no emissions cap trigger price, with no emissions cap

  • Also, co2 prices with a safety valve will trade

Also, co2 prices with a safety valve will trade at artificially low levels due to limited upside at artificially low levels due to limited upside

  • The Bingaman

The Bingaman-

  • Specter $12/mt safety valve

Specter $12/mt safety valve with 5% real appreciation takes 19 years to with 5% real appreciation takes 19 years to reach $30/mt reach $30/mt – – while current ETS prices for while current ETS prices for 2008 2008-

  • 2012 are already above $30

2012 are already above $30

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ENVIRONMENTAL DEFENSE

$30/ton & 6.1 $30/ton & 6.1 bn bn mt mt-

  • co2* per annum:

co2* per annum:

Manageable with Gradual Long Manageable with Gradual Long-

  • Term Caps

Term Caps

  • 1.4% GDP

1.4% GDP

  • 7.1% Government Expenditures

7.1% Government Expenditures

  • 15.2% Adjusted Corporate Profits

15.2% Adjusted Corporate Profits

  • 19.4% Federal Government Expenditures

19.4% Federal Government Expenditures

  • 20.5% Fuel, Power, & Transport Expense

20.5% Fuel, Power, & Transport Expense

  • 33.3% of Fuel and Power Expenses

33.3% of Fuel and Power Expenses

*EIA U.S. co2 from energy, pre *EIA U.S. co2 from energy, pre-

  • offsets, 2007e
  • ffsets, 2007e
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ENVIRONMENTAL DEFENSE

Capitalization of the carbon market Capitalization of the carbon market

An efficient market will drive investment An efficient market will drive investment

USCAP

$1,380 $1,380 bn bn 46 46 Global Global $240 $240 bn bn 8 8 Deforestation Deforestation $150 $150 bn bn 5 5 Western Europe Western Europe $210 $210 bn bn 7 7 US US

@ $30/mt: @ $30/mt:

1 year 1 year

  • f allowances
  • f allowances

bn bn-

  • mt

mt / / year year

2007 IEA 2007 IEA

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ENVIRONMENTAL DEFENSE

Environmental Markets Environmental Markets

Environmental Markets Mission: To connect policymakers with the financial markets expertise needed to build confidence in a cap on emissions and a global carbon market. Mission: To connect policymakers with the financial markets expertise needed to build confidence in a cap on emissions and a global carbon market. Key Projects:

  • Market Structure: operational characteristics of an efficient carbon

allowance market

  • Uncertainty: option strategies for hedging climate sensitivity under

various cap and trade proposals

  • Offsets: developing global trading protocols for methane,

deforestation and other non-co2 tonnage Key Projects:

  • Market Structure: operational characteristics of an efficient carbon

allowance market

  • Uncertainty: option strategies for hedging climate sensitivity under

various cap and trade proposals

  • Offsets: developing global trading protocols for methane,

deforestation and other non-co2 tonnage Network: Securities firms, alternative investment firms, academics, carbon market modelers, “above the fray” leaders Network: Securities firms, alternative investment firms, academics, carbon market modelers, “above the fray” leaders